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Internet Giants Prepare for WorldCom 'Storm'
swight1701 writes: "MSNBC has an article about how E-bay and others are enacting contingency plans in case WorldCom goes under and no one steps in to run UUNet right away. Also talks extensively about how this is happening already in Europe with KPNQwest, who is telling their customers, 'During this week you can already expect outages to happen that we cannot solve any more. At the end of this week we expect that larger parts of the network will be down.' Can telecommunications giants realistically keep up with the public's need for ever-growing bandwidth without going bankrupt?"
I can't think of a better example why every business needs redundant networks than this.
Rule #1 -- Politics always trumps technology.
"Can telecommunications giants realistically keep up with the public's need for ever-growing bandwidth without going bankrupt?"
Wow, didn't realize my desire for a faster internet connection threw Woldcom in the crapper! Damn my need for lower pings! Here and I thought it was a socially irresponsible management and a poor decision to use "Creative Accounting" choices to make the immediate stockholders happy.
The problem is the myth of cheap bandwidth. Although _local_ bandwidth is getting increasingly fast, the nonlocal bandwidth to support that just isn't there - it costs a lot of money to manage interstate lines.
Internet access is great, but it's not worth more than cable. When your internet bills outweigh your cable bills, you start losing customers. Therefore, companies that try to provide access for everyone find they have to have a very low price to have any volume. The large carriers, then, aren't getting a lot of money out of the deal either - they didn't think about how little money there would be in the game. They have to sell the bandwidth or else their investment is totally lost. However, so many people made these large bandwidth infrastructure purchases that there is a lot of competition, therefore the prices have to be low (and they have to be low to enable enough users on the system). Thus, the telecom providers are stuck in a situation where it is hardly able to pay its bills.
Anyway, this is mostly a guess, but I'd bet that it's pretty close to the truth.
Engineering and the Ultimate
The question is: Can telecommunications giants realistically keep up with the public's need for ever-growing bandwidth without going bankrupt?
Most certainly, if executives can be satisfied with a couple of hundred tousand dollars a year each instead of tens and hundreds of millions of dollars a year each, and if stock holders can be satisfied with modest but steady returns on their investment. Greed ends up killing all it touches.
The big investments in infrastructure (roads, bridges, cross channel tunnels, whatever) never pay back fast enough for the original owners to survive.
So they go bust, the banks sell off the assets minus debts to new operators, who do fine (after all, an operating profit was available, just not enough to service the debt).
The bill is picked up by the banks, private investors and/or government, depending on your local system.
The typical exit strategy for a bankruptcy like this, chapter 11, is a debt for equity swap.
Where the bond holders and banks become the new stockholders.
And existing stockholders get the short end of the stick !!
The only questions which remain are.....
Will the emerging DEBT FREE comm giant, OUT COMPETE, the remaining DEBT LADEN survivors?
Trigging a cascade of bankruptcies? AT&T, Sprint, etc. who is next?
Will the same thing happen to airline industry?
Kinda like musical chairs, the first company to bankruptcy court wins?
"Can telecommunications giants realistically keep up with the public's need for ever- growing bandwidth without going bankrupt?"
I love that question from an economics standpoint. How can over-demand for a product cause a company to go bankrupt? You don't think we're over regulating the telecom industry or anything, huh?
... and panic.
FCC regulations (authorized by the Communications Act of 1934) require that company provide 60 days notice before terminating telecommunications services. This has been interpreted more recently to mean notice before cutting off voice or data services, and means that even in the case of a chapter 7 bankruptcy, the bankruptcy trustee isn't allowed to just sell all of the assets and leave customers hanging high and dry.
Furthermore, in WorldCon^Hm's case, they will almost certainly be filing for a chapter 11, which means they are trying to reorganize debts, and not shutdown the business. In a chapter 11, the advantage is that Worldcom will paradoxically be more able to get financing after they file for bankruptcy, since lenders know that they won't be screwed by past debts.
(Bankruptcy essentially creates a two legal companies from the perspective of debt --- before the bankruptcy and after the bankruptcy. It means that equity shareholders will be completely screwed, and that debt holders will be partially screwed, but hopefully the company will emerge from bankruptcy able to pay its bills. That means that creditors that lend a company money after the bankruptcy have more of a chance to get paid --- which means that suppliers will more likely be willing to give WorldCom credit, and banks will be more likely to give WorldCom short-term loans, etc.)
The thing is that all of the ISP pitched value added services like managed VPN and hosting because it was easy to do and had great profit. They where counting on revenue from these services to make up for lost revenue for pure co-location and bandwidth as capacity was overbuilt. They never had many takers. Why pay a few thousand a month for somthing that you can set up in a few hours and have better control over? The only way to justify it would be to get savings by downsizing. Most managers do everything they can to avoid downsizing.
Interested parties can check out Q complaints at 'Tsewq'.
IMHO: it'll be decades before all the built fiber capacity is used up, because not only did the telecoms install it, but non-telecoms, like Williams (later WilTel), and electric utilities with existing right-of-way space, like AEP, also laid fiber with the intention of marketing it. But Q won't go under; the RBOC will keep them afloat, and sale of their Yellow Pages asset will generate cash (as opposed to WCOM, who lists assets of $104 billion, half of which is intangible/goodwill, and the rest of which will likely be undervalued if sold).
I'd have a personalized plate on my car, but "toxic bachelor" won't fit into 7 letters.
Creative accounting merely hides losses by basically listing a bunch of income that isn't really there. The actual money loss comes from somewhere else, such as selling bandwidth for too cheap.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Is Worldcom going bankrupt from providing bandwidth?
:)
Nope. They make lots o' money from that.
They are going bankrupt because they got greedy. As did Enron, Haliburton, and all the others to come.
Remember, the mantra for the last ten years is to maximize shareholder value. To do so, firing your workers en masse is acceptable. Buying up synergystic businesses at silly prices is okay, too, because no matter what the true value of the company is (read: earnings per share), the perception of the stock market has become the ONLY ruler to measure performance.
So, to keep stock values high, they cooked the books, constantly, and eventually were caught.
The people who ran Worldcom made themselves millionaires. They will never see a real jail. They know this, they knew this.
Alan Greenspan himself, an #1 acolyte of Ayn Rand, has finally grown up and wrote the epitaph for unbridled corporate greed:
"An infectious greed seemed to grip much of our business community" as stock prices ballooned in the late 1990s, Greenspan said. "It's not that humans have become any more greedy than in generations past. It is that the avenues to express greed had grown so enormously."
If Greenspan can see it, then the end of this madness may be at hand. Sadly, my portfolio agrees as well.
Have these companies created mighty servers and bandwidth for all this trouble? Let's just say I'v spent 10 minutes trying to search for Greenspan's speech online, and I've given up because even on a cable modem, it's too slow, especially on a beautiful sunny day with lots to do outside.
AOL made billions, and should have been a rock-solid stock based on just being rich. But they blew it on acquisitions. Why? To make themselves even richer. To boost stock prices.
Greed, stupid dumbass greed, is causing the collapse of the world economy at the moment. Greed combined with an infectious contempt for the common welfare of all people as well, for greed was GOOD for the businessmen who profited. WE are going to pay for all this mess. We are going to see higher taxes to cover the shortfalls, to pay for the interest on all that lovely new debt incurred by tax cuts for rich people. Our standard of living is going to plumment for the benefit of a couple million rich connected people, one of whom was crowned President by his dad's judges.
Time to get a commune and set up to ride this era out. Peace out, baby